Profits are the reward for entrepreneurship
Entrepreneurship is a risky activity which involves taking decisions in the face of uncertainty to reap certain rewards. This reward may vary from one person to the other depending on the need of the entrepreneur (Moschandreas, 1999). The rewards and benefits are the motivation behind one’s entrepreneurial spirit to undertake risky ventures. Some entrepreneurs desire for fame and recognition while others desire for unlimited money both of which can be attained through profits (Parker & Stead, 1991). Therefore, the profits an entrepreneur makes through his superior knowledge and judgment earns him the desired rewards and benefits.
Rising profits serve as the ultimate reward for the entrepreneur who makes use of his distinctive ability to take decisions in the face of uncertainty (Glancey & McQuaid, 2000). Profit as a reward can be better earned if the entrepreneur is able to protect the information from competitors and raise sufficient barriers to entry thereby creating a monopoly. This means that the size of the entrepreneurial reward depends on the monopoly power of the entrepreneur in order to create a good reputation and expand further to earn higher entrepreneurial rewards (Bowles, Edwards & Roosevelt, 2005).
Moreover, the higher the profits are perceived by a potential entrepreneur the more willing he is to invest in the market. In the long run, more entrepreneurs are expected to exploit the profitable opportunity available and compete against one another thus, reducing the size of expected profits (Harper, 2007). Though some entrepreneurs have superior knowledge and judgmental capability but the level of competition will decrease the level of expected rewards and profits (Barbera, 2009). Read also are entrepreneurs born or made introduction
Fewer opportunities are available to the new entrepreneurs as the number of active entrepreneurs in the market increase thus causing competition and forcing the expected level of profit to be determined by the time and energy spend along with the judgmental capability. This also becomes the equilibrium level of profit in the long run (Kay, 1996). A number of entrepreneurship theories have also played a role in influencing the view of profit as a reward for entrepreneur. These theories view profit as a residual reward to entrepreneurship.
Casson’s theory is particularly relevant in this case which rests on three views (Casson, 2003). Firstly, profit is considered a result of monopoly pricing which takes place due to market imperfections and high barriers to entry. Imperfect competition takes place when there is lack of information and barriers to entry due to which few firms dominate the market and make monopoly profits. Entrepreneurs acting in such a market can make high profits and reap unlimited profits due to the power of monopoly pricing (Schumpeter, 1982).